Generated negative returns
Imaginary numbers
December 1, 2009 15 comments
The Financial Times reports that many CEOs of oil and gas companies got paid even more in 2008 despite “missing performance targets or other measures of investor value”. In general, as the FT puts it:
Almost all oil and gas companies generated negative returns to shareholders last year and many did not meet their internal targets.
This is something on which I will be happy to be educated by readers who know more than I about finance, but generated negative returns seems to be not just mealy-mouthed but almost oxymoronic. Negative returns, I take it firstly, is straightforwardly euphemismistic for losses, ((It is odd, by the way, that a return can denote either money gained, or some article of goods (or a cheque) that is sent back (the latter sense recorded in OED from 1875). It seems as though the financial sense of return grew out of an agricultural sense of “yield” first recorded as used by Bacon in 1626:
In some Grounds which are strong, you shall haue a Raddish, etc., come in a month; That in other grounds will not come in two; And so make double Returnes.
)) but the combination with generated adds a spice of paradox. After all, to generate (from Latin generare, to beget) means “to bring into existence” or “to produce” (OED). Yet if the oil companies generated negative returns to shareholders, that means (I assume) that the shareholders lost (putative or actual) money because the market price of their shareholdings went down in the period in question.
In which case, surely nothing was generated at all; rather, (putative or actual) money was lost, or value destroyed?
Rightly or wrongly I was under the impression that the “returns” in this case referred to a document submitted to the tax people. Over here (UK) we do “tax returns”.
So if I’m right, a return *was* generated. The problem comes in calling a return negative or positive. It’s not the return, it’s the data on the return?
English is a confusing language…
Is that right? It’s all very confusing! Perhaps a “negative return” should be renamed a “stay away”.
“Returns” would suggest to me that something is being received (rather than taken away or lost). I am being given something, I am receiving (assuming I’m a shareholder). Putting “negative” in front doesn’t seem to change this much, especially when it’s combined with “generating”, which again would suggest it’s generated for me.
I think we’re dealing with fairly basic ontological metaphors here – of giving and taking (which are probably hardwired into our primate brains at some level, and which aren’t equipped for dealing with the abstract stuff of “money”).
I liked the idea of “putative money”, btw. That makes a lot of sense to me when I consider the meaning of my bank account.
Unrelated: some comment here on the remarks of Steven and others in a previous (now closed) Unspeak discussion thread:
http://www.mediahell.org/lancet_unspeak.htm
I think that following Bruce’s link will be generating negative returns?
I think the question is whether it’ll generate simple, compound or negative interest.
I’m banking on inflation.
You and Alan Guth both.
“Returns” is short for return on investment, the R in ROI. It is essentially shareholder profit. It’s not crazy to think of this as a “negative value.” Finance is essentially accounting, which is to say, math, a realm where negative numbers are real.
“Generating negative returns” is corporate-speak alright, but it isn’t exactly unspeak. After all, we could use the unoffensive phrase “generated no returns” just as we might say “yielded no evidence” or produced no crops,” though nothing has been generated, yielded or produced.
Journalists could say the companies “failed to generate returns,” but this doesn’t distinguish between losing and breaking even. They could say “lost shareholders’ money,” but this almost sounds hostile or negligent, and I doubt they could get away with it for long. I think they have settled on “generated negative returns” because it is the best combination of accuracy and sucking up.
Yet businesses themselves are reported as making (or recording) losses, not “negative profits”. What’s the difference?
Fair enough, although “recording a loss” is pretty euphemistic too, since it’s one step removed from the action of actually losing it. I think the point is that no one wants to say that Person X or Company Y lost someone else’s money. It makes capitalism sound too much like a casino.
I’m not so sure if ‘recording’ or ‘reporting’ a loss is really that euphemistic. Don’t accounting rules allow a fair amount of leeway when it comes to what you count as a loss for a particular year? So ‘recording a loss’ actually displays this background of sharp accounting practices on its face.
If a company has a loss for a year, then the money is basically gone forever, but if you’ve bought a share and it’s gone down, then it might go back up again and the value that you’ve lost might “return”? I’m groping here.
(actually maybe I’m not. It’s pretty fundamental to financial accounting that the P&L account records transactions related to a specific time period, so a loss is a loss – you might make a profit next year but that will be reported in a different set of a/cs. Talking about shares and hedge funds however, you’re referring to an explicitly long-lived asset and you’re more interested in the value of the asset sub specie aeternatis than what it happened to deliver to you in any one year.
btw, if you ever want to see abject linguistic confusion, take a company which lost $200m in year 1 and lost $100m in year 2 and ask half a dozen analysts or business journalists whether the profits went “down” or “up”
I take the point that a shareholder’s loss in a year is only putative if the shareholder has not actually sold the shares at the lower price, but in that case the “negative return” is only putative; so I suppose I still find it a bit strange that it is a return (because it isn’t yet a crystallized “return” on the long view you mention), that qua return it is able to be negative, and that it has been generated.
Is that a trick question? There weren’t any profits (but losses went down)?
not a trick question because lots of investment committees have templates that you need to fill in with “Profit growth” in them, and the arguments over whether the situation I described should be filled in as “+50%” or “-50%” can be brutal and bloody.